1. Field of the Invention
The present invention relates to a method and apparatus for selecting taxpayers to audit by a tax collecting entity, and which maximizes total audit assessment amount.
2. Description of the Related Art
Tax collecting entities (such as, for example, state or federal Departments of Revenue) typically audit taxpayers to improve taxpayer compliance in regard to tax liabilities. Therefore, these tax collecting entities must select specific taxpayers to audit. This process of selecting specific taxpayers to audit will hereinafter be referred to as xe2x80x9caudit selection.xe2x80x9d
Typically, audit selection is a manual, ad hoc basis, where auditors simply select a taxpayer to audit based on some specific criteria which happens to be noticed by the auditor. Often, taxpayers are selected for auditing based on referrals, that is, links to related taxpayers that are being audited. In some cases, taxpayers are randomly selected to be audited.
Unfortunately, such conventional approaches to audit selection are inefficient in using the resources of the taxing entity, and do not effectively maximize the total audit assessment amount (that is, the total amount of money assessed against taxpayers as a result of audits being performed).
Accordingly, it is an object of the present invention to provide an audit selection technique which effectively uses the resources of a taxing entity, and increases, or maximizes, the total audit assessment amount.
Additional objects and advantages of the invention will be set forth in part in the description which follows, and, in part, will be obvious from the description, or may be learned by practice of the invention.
Objects of the present invention are achieved by providing an audit selection method and apparatus in which taxpayers to audit are selected so that the total audit assessment amount is maximized.
Objects of the present invention are also achieved by providing an audit selection method which includes (a) creating an underreporting model indicating probability of an assessment being made against respective taxpayers from historical data; (b) creating an analytical space for analyzing the taxpayers, the analytical space being based on the underreporting model; (c) positioning taxpayers within the analytical space; (d) analyzing factors within the analytical space based on historical data; (e) using the analyzed factors to predict audit return on auditors"" time when auditing taxpayers; (f) forecasting assessments against taxpayers based on the predicted audit return; and (g) formulating a basis for audit selection from the forecasted assessments.
In addition, objects of the present invention are achieved by providing an audit selection method which includes (a) scoring taxpayers based on historical data to provide respective taxpayers with a score indicating a probability of an assessment being made against the taxpayer if an audit of the taxpayer is conducted; (b) assigning taxpayers into categories so that taxpayers with the same score can have different probabilities of an assessment based on the category of the taxpayer; (c) creating an analytical space for analyzing the taxpayers, the analytical space defined by the taxpayer score and category; (d) positioning taxpayers within the analytical space based on their score and category; (e) analyzing factors within the analytical space based on historical data; (f) using the analyzed factors to predict audit return on auditors"" time when auditing taxpayers; (g) forecasting assessments against taxpayers based on the predicted audit return on auditors"" time; and (h) formulating a basis for audit selection from the forecasted assessments.
Moreover, objects of the present invention are achieved by providing an audit selection method which includes (a) scoring taxpayers based on historical data to provide respective taxpayers with a score indicating a probability of an assessment being made against the taxpayer if an audit of the taxpayer is conducted; (b) assigning taxpayers into categories so that taxpayers with the same score can have different probabilities of an assessment based on the category of the taxpayer; (c) creating an analytical space, the analytical space being a graph having a first axis indicating score and a second axis indicating category, the graph having cells at each intersection of score and category; (d) positioning taxpayers within the analytical space based on their score and category; (e) recalculating the probability of making an assessment within each cell of the graph, based on the actual taxpayers in that cell; (f) performing a regression for each category based on the recalculated probabilities, to determine an equation for each category which forecasts probabilities that an assessment will be made for taxpayers in that category; (g) calculating an average assessment amount for cases in each cell of the graph; (h) determining the time taken to perform an audit for each cell of the graph; (i) using the equations, calculated average assessment amounts and determined time taken to perform an audit, to predict audit return on auditors"" time; (j) forecasting assessments against taxpayers based on the predicted audit return on auditors"" time; and (k) formulating a basis for audit selection from the forecasted assessments.